China's antipollution push may cool growth

Country’s economy has soared as skies filled with smog.

Through the past BEIJING — four decades, China has achieved breathtaking eco- nomic growth at the cost of smoggy skies, fetid streams and lakes of dying fish.

Now China is undertaking one of its most extensive efforts yet to crack down on corporate polluters, an effort that could be felt economically and in world markets.

Cities across China have stepped up sending squads of inspectors to steel mills, coalfired power plants and other businesses, and ordered offenders to clean up their operations or risk being shut down. On Aug. 21, environmental authorities ordered more than two dozen cities in northern China, including many main steel production centers, to reduce air pollution by 15 percent this winter.

Even tougher measures will be coming, Li Ganjie, China’s minister for environmental protection, said Monday at a news confer- ence held in conjunction with the Communist Party congress, a twice-per-decade event at which the party selects new leaders to tackle its problems.

The campaign, wh i ch started two years ago but picked up speed in recent months, is so broad that it is starting to affect markets. Some economists have begun to warn of a possible mod- est slowing of the entire Chi- nese economy this winter.

Officials sought recently to reassure the Chinese pub- lic and businesses that the pollution crackdown would help clean up the country without disrupting growth.

“It is impossible that such efforts will not have any impact on enterprises,” Li said. “But in the long run, and from the macro perspective, the impact will be minimal.”

Pollution figures strongly into the broader debate over the cost of growth in China. Chinese officials are under pressure to keep the econ- omy revving to provide good jobs for its young people and for rural residents moving into cities, among others. But stimulating growth has compounded China’s debt problems, added to its pollu- tion woes and created other complications that Beijing must address.

If successful, the antipollu- tion campaign could produce bluer skies and cleaner water across China, with potential health benefits for the coun- try’s 1.3 billion people.

“For those areas that have suffered ecological damage, their leaders and cadres will be held responsible for life,” said Yang Weimin, deputy director of the Communist Party’s Office of the Central Leading Group on Financial and Economic Affairs. “Our people will be able to see stars at night and hear birds chirp.”

But the effort could have a cost as well. Economists at Société Générale, a French bank, predicted in a recent research note that environ- mental restrictions could shave two-tenths of a percent off economic growth.

“Modestly slower growth will be a necessary sacri- fice for maintaining social stability over the medium term,” it said.

Global prices for iron ore, a crucial material for making steel, have slumped in part on expectations that

many Chinese steel mills will have to close temporar- ily this winter.

China is so important to the global economy that a campaign against pollution here could affect economies around the world, particularly iron ore exporters. Economists in Australia are already starting to become concerned.

Australia “is absolutely dependent on China — that’s true of iron ore prices, but it’s also true of Australia’s national income,” said Chris Richardson, the chief Australia economist for Deloitte, the global accounting firm.

Although China now leads the world in its installations of solar and wind power, it still relies on coal to generate three-quarters of its electricity. Electricity use by households is rising as more Chinese consumers buy air-conditioners and adopt the trappings of middle-class life.

Turning off electricity to residential customers to reduce pollution is politically unrealistic. That means steeper cuts may be necessary for industrial users.

C ui Dongshu, secretary-general of the government-affiliated China Passenger Car Association, said in a telephone interview that the government had been inexorably tightening pollution standards. The country’s top priority has been shifting away from maximizing economic output and toward environmental protection, and companies must adapt, he said.

“Auto companies have adequate profits,” he said. “They can withstand it, but their production schedules may be affected.”

The pollution effort’s impact on global markets is uncertain, and on Monday Chinese officials said they may be overreacting.